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In April, Financial Literacy Month brought new resources to boost your financial knowledge. Financial literacy is most valuable as a continuous lifestyle, not just a once-a-year event. It's about establishing a mindset that guides your money decisions every day, shaping a continuous path of wise choices, both big and small.
As we transition into May and say goodbye to the "official" Financial Literacy month, let's dig deeper into the concept of financial literacy and shine a light on some clever, occasionally overlooked tips to enhance your financial wellness throughout the entire year.
Originally published: September 19, 2024
Financial literacy means understanding and using various financial skills, including budgeting, investing, and personal financial management. It's about learning the essentials of financial principles to make informed decisions that align with your personal and financial goals.
Regardless of income levels, everyone has the potential to enhance their financial literacy. Even the wealthy have room for improvement in this area. Surprisingly, over one-third of Americans earning $250,000 or more per year live paycheck to paycheck, according to Bloomberg. This highlights the fact that having a high income doesn't guarantee financial stability; therefore, being financially literate is crucial for all of us.
One of the simplest yet most effective strategies for managing your finances is automating your savings and investments. Set up automatic transfers to your savings account and direct deposits into your investment accounts. This not only ensures you're consistently saving but also helps in harnessing the power of dollar-cost averaging in your investments.
If you haven't already, start small. Set up a monthly transfer of just $10 from your checking to a high yield savings account right after your paycheck arrives. Or try automating your retirement contributions to consistently save a small portion of your income. You'll quickly see how rewarding saving can be, and maybe you can even swing boosting that monthly amount.
Micro-investing platforms allow you to invest small amounts of money regularly, which can be less daunting than placing large sums into the market. This can be a great way to build a habit of investing without feeling the pinch on your wallet. It's also a wonderful way to learn more about how investing in the market works.
Apps like Acorns allow you to invest spare change or small amounts regularly. For instance, every time you buy groceries, Acorns can round up your purchase to the nearest dollar and invest the difference.
There are a ton of financial apps available to help track your spending, budget your finances, and manage your investments. These tools make it easier to see where your money is going and identify areas where you can cut back or reallocate funds more efficiently.
Intuit's Credit Karma, which replaced the original budgeting app Mint, is a popular option. But there are plenty of alternatives to choose from. Check them out here.
Sometimes, our background can shape our financial beliefs and biases, which may not always serve our best interests. Challenge these preconceptions by exploring different financial perspectives and products.
For instance, if you've always been wary of stocks, consider learning about diversified mutual funds or ETFs as a less risky way to enter the market. You could start small with a robo-advisor like Betterment or Wealthfront, which can automatically invest in diversified ETFs based on your risk tolerance.
Investing isn't free, and fees can eat into your returns significantly. Spend some time understanding the fees associated with your bank accounts, investment funds, and credit cards. Look for low-fee or no-fee options that can save you a lot of money in the long run. Among the most popular low-fee options is Vanguard's VOO S&P 500 ETF with extremely low fees.
To put it in perspective, take a look at the chart below from the SEC. Switching from a fund with a 1% annual fee to one with a 0.25% fee can save tens of thousands of dollars over time.
Being frugal doesn't mean you are cheap. Embracing a frugal lifestyle by seeking out discounts, using cashback offers, and prioritizing spending can free up more funds to invest and grow your financial portfolio.
Instead of buying a new book, borrow it from a library or purchase it used at a discount. Instead of buying Starbucks everyday, invest in an instant cold brew maker to use at home. Another easy tip? Use cashback credit cards for everyday purchases to earn rewards or cashback that you can reinvest.
Spending less than you earn is a crucial component to financial literacy, regardless of the size of your paycheck. This approach not only builds a buffer against financial emergencies but also frees up capital to invest and grow wealth over time.
Incorporating this principle into your financial routine can be transformative. Start by reviewing your expenses regularly and identifying areas where you can cut back, perhaps luxuries or semi-fixed expenses like subscriptions or high-end groceries. Redirect these savings into an emergency fund or investment accounts to build a more secure financial future. This habit ensures you are not just earning money but also growing it.
The world of finance is always evolving. Make it a habit to read financial news, listen to podcasts, or even take courses in personal finance or investing. The more you know, the better equipped you'll be to make better decisions. Keeping up with the latest innovative ideas in the financial space is a key component of maintaining financial literacy throughout the year.
Adopting these strategies not just during Financial Literacy Month but throughout the year can transform your financial future. Becoming more financially savvy empowers you to make better choices and reduce financial stress. Remember, the real journey of financial education is ongoing. Change your habits now and keep the momentum going every day!
This article is for informational purposes only and does not constitute financial, tax, or investment advice. Consult a qualified financial professional before making retirement planning decisions.
Disclosures
The information on this page is provided for educational purposes only and is not intended as investment, legal, or tax advice. It is designed solely to illustrate how longevity-linked investment benefits may work under certain assumptions. Actual results will vary. All illustrations, examples, and case studies are hypothetical and are intended to demonstrate potential scenarios — not to predict or guarantee actual outcomes. They do not represent the performance of any individual investor, portfolio, or account.
Key Assumptions Used in the Illustrations
Life expectancy and mortality projections are based on the most recent Social Security Administration (SSA) tables available at the time of simulation.
In the event of death or early withdrawal, hypothetical scenarios assume that investors who exit early, or their estate in the event of death, may receive 75% of the lesser of the initial investment or current market value, plus 1% for each full year the account was active. Case studies assume standardized market growth of 8% annually and do not incorporate unexpected market volatility, inflation, changes in interest rates, or changes in an investor's personal circumstances.
Simulations may assume a 3% annual early withdrawal rate prior to payout or death. All figures shown are net of fees. No forecast, projection, or hypothetical return should be relied upon as a promise or representation of future performance.
Past performance is not indicative of future results. The 8% annual market growth rate used in illustrations is a standardized assumption for modeling purposes only and does not represent the historical or expected performance of any specific investment. Note that early or voluntary withdrawals by other participants can affect fund performance and the size of distributions, and that a higher-than-expected number of participants reaching payout milestones may reduce the per-participant benefit received.
Savvly's Longevity Benefit is not a bank product, not FDIC insured, not insured by any federal government agency, not a guaranteed or insured investment, and not insurance. Investment values may decline.
Savvly's Longevity Benefit may not be suitable for all investors. Eligibility to invest is subject to qualification requirements and not all investors will be eligible. Investors should carefully consider their investment objectives, risk tolerance, time horizon, and financial situation before investing. See savvly.com/disclosures for current eligibility criteria, fees, risks, withdrawal terms, and fund assumptions.
This content is published by Savvly, Inc. Savvly has a financial interest in the products described and this content should not be interpreted as independent financial research or analysis. Investors should carefully evaluate their own circumstances and consult a qualified financial professional before making any investment decision.